By Josh Brokaw
If Ithaca does ever build a conference center, one thing is almost for certain: Taxpayers will pay for part or all of the bill.
The results of a market demand study for a conference center in downtown Ithaca have been released, and the headline finding has been that Ithaca could support a facility for conferences, weddings, and the like. That doesn’t mean that building a conference center would make anyone any money, directly.
“It’s very typical stand-alone conference centers don’t make money,” Rob Hunden, principal of Hunden Strategic Partners, told a meeting of interested personages on Tuesday, April 18. “Hotels make the money.”
Hotels make approximately 75 percent profit on a rented room, Hunden said, while conference centers usually operate at a loss.
Hunden’s agency performed a study funded by the Downtown Ithaca Alliance. In 2003, the Pinnacle Advisory Group studied demand for a conference center, and “suggested that was not the right time to meet a downtown meeting or conference center,” Hunden said.
Now, with new hotels opening up and Ithaca increasing its reputation as a vacation destination, there is potentially demand for a conference center.
“There seems to be an exceeding amount of what we would call unaccomodated demand in the marketplace,” Hunden said. “Groups are shoehorning themselves into facilities that aren’t ideal for them just because they want to be here.”
Hunden’s study recommends opening a conference center with about 15,000 square feet in rentable space, and about double that in total size. By the tenth year of operation of this theoretical conference center, over $2.2 million in annual direct revenue is projected – though the facility would still operate at a $100,000-plus deficit. These projections, of course, include “dozens of assumptions.” In Year One, Hunden’s study projects $1,081,000 in revenue in Year One, versus $1,397,000 in expenses.
“It’s not only unaccomodated demand, but the rates people are willing to pay for catering and all those other things are much higher here that you’re going to get in the middle of Missouri,” Hunden said. “Typically a stand-alone conference or convention or any public event facility is going to be a money loser inside the business itself. It’s an economic development thing for the community, of course, which is why it’s done.”
If the conference center were hooked to an existing hotel, Hunden said, there could be a lot of shared expenses. Both Hart Hotels, owner of Hotel Ithaca, and Urgo Hotels, owner of the new Marriott, have talked about putting a conference center in downtown Ithaca.
Hunden said that he was surprised and nervous when running the demand model, because if the assumptions were “a little less conservative,” the potential conference center showed a profit.
“The financials on these are difficult enough is it’s not likely the private sector would come up with something,” Hunden said, noting that public, non-profit, and privately-run, publicly-owned models are all options.
Ithaca’s “centrally isolated” location is both a pro and con: it’s a drag for people coming in via air or interstate, but it is centrally located for people in New York State.
Local hotel prices could be seen as a weakness, since rates have gone up about $25 per night over the last five or six years, Hunden said.
“Things have gotten so good for the hotels, those rates have gone up about $25 over the last 5 or 6 years per night.”
Building a conference center is a “strong defensive move,” Hunden said, “because when things go badly in the leisure market or the business market, you have that third leg to lean on.”
Besides December and January, Ithaca’s hotels operate at a high occupancy rate on the weekends. During the mid-week, they don’t get the sort of “transient” business-people who make the hotel business go in larger metropolitan areas.
In the executive summary of the Hunden report, published below, it says “an ongoing funding source will be required to support the potential net operating losses sustained by the facility”
Construction estimates in the study range between $8.230,000 to $16,450,000, without including site costs.
The study says the conference center could promote spending of $148 million over 20 years, leading to $2.1 million in county hotel tax revenues over 20 years and $3.4 million in sales tax revenues over that period, for the city and county combined.
“It’s an interesting business because it can be profitable,” Hunden said of conference centers, “but it can also be a disaster.”Conference Center Study 2017 - Executive Summary With Cover Page Updated